Click here to close now.




















Welcome!

News Feed Item

Big pharma will increasingly tap M&A to close $100 billion growth gap, but path to deals grows more complex

Ernst & Young's newly released "Firepower Index" finds big pharma's capacity for M&A has decreased just when it needs transactions for growth and shareholder returns

SAN FRANCISCO, Jan. 7, 2013 /PRNewswire/ -- Big pharma companies are facing a widening "growth gap" that will increase pressure to drive growth through mergers and acquisitions (M&A).  But big pharma's attempts to make deals will be challenged by its diminished resources and fiercer competition for attractive assets from rapidly growing big biotech and specialty pharma companies. These and other findings were released today by Ernst & Young in the report Closing the gap? Big pharma's growth challenge and implications for deals.

"While the dynamics of the pharma industry remain fluid, the deal environment in 2013 and beyond will be more complex and competitive," said Glen Giovannetti, Ernst & Young's Global Life Sciences Leader. "Life sciences companies that are positioned appropriately should benefit from increased competition and see higher premiums. However, the finite resources of many big pharma companies and the need to make prudent acquisitions to address the immediate growth gap mean they will likely be even more selective about the targets they pursue."

Big pharma's growth and "firepower" gaps

With continued flat sales in mature markets, big pharma—defined as the 16 largest US, European and Japanese pharma companies measured by revenue—has increasingly looked to emerging markets to drive overall revenue growth. However, a slowdown in these markets as a result of various factors has widened the "growth gap" facing the industry. By comparing the gap between IMS Health's forecast for the global drug market and industry analysts' estimates of big pharma sales over the next 3 years, Ernst & Young estimates that this growth gap will reach approximately US$100 billion by 2015. In other words, big pharma will need an additional US$100 billion in revenue in 2015 just to keep up with overall market growth.

Thanks to a flat outlook in developed markets— in part a result of stagnation in the Eurozone — and a slowdown in emerging markets, sources of organic growth are under pressure. As a result, many big pharma companies are likely to accelerate their search for inorganic growth through M&A in 2013. However the capacity of big pharma to conduct such deals has diminished in recent years. This is due to less available operating cash resulting from slower revenue growth— due partly from continued pressure on drug pricing — and increased borrowing to fund higher dividends, stock repurchases and previous transactions. According to Ernst & Young, the financial capacity or "firepower" of big pharma to conduct deals has declined by 23% between 2006 and 2012.

Big pharma's new competition for assets

Even as big pharma's deal making ability has shrunk, the firepower of big biotech and specialty pharma (including generics) companies has increased. According to Ernst & Young's Firepower Index, between 2006 and 2012 the firepower of big biotech has increased by 61% while specialty pharma's firepower is up 20%. As a result of these shifts, big pharma's share of the combined acquisition capacity of these three segments has fallen from 85% in 2006 to 75% in 2012.

Implications for 2013 and beyond

In addition to a more competitive and complex deal environment, the report identifies several key trends for transactions in the coming months and years.

  • More bolt-on acquisitions: Only a handful of big pharma companies now have the firepower to pursue M&A targets above US$60 billion. However with big biotechs and specialty pharma having joined big pharma in their capacity to engage in smaller deals, more bolt-on acquisitions are anticipated.
  • More divestitures: As pharma companies look to boost firepower and sharpen their strategic focus, it is likely they will consider more divestures of non-strategic assets. Both corporate investors and private equity are seen as likely acquirers.
  • More offshore deals and emerging markets deals: The need to address the growth gap will drive pharma companies to look for attractive acquisitions everywhere. For US buyers, high tax rates in the US may increase the attractiveness of using offshore cash reserves to buy non-US companies. With 2012 emerging market sales growth rates for big pharma declining by about 50%, many companies will need to close this gap through more deals in emerging markets.

"With fewer options for organic growth, pharma companies will need transactions and, more than ever, measures to build and conserve firepower are vital," said Jeffrey Greene, Ernst & Young's Global Life Sciences Transaction Advisory Leader. "Pharma companies addressing the growth gap through M&A will seek to increase and preserve their firepower by improving working capital management, divesting non-strategic assets, conducting more careful strategic diligence to ensure targets are valued appropriately in the face of stiffer competition, and employing novel deal structures to mitigate risk."

About Ernst & Young's Global Life Sciences Center

Ernst & Young's Global Life Sciences Center brings together a worldwide team of professionals to help life sciences companies address their challenges at every stage of development. From the emerging biotech or medtech firm to the well-established, global pharmaceutical company, our industry teams bring deep experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify implications and develop points of view on relevant industry issues. Whether it's forming innovative alliances, improving operations, new regulations or exploring new markets, we can give you a clear perspective on how to drive value in an increasingly complex, competitive and risk-driven environment. It's how Ernst & Young makes a difference. For more information, please visit www.ey.com/lifesciences or email [email protected]. You can also connect with us on our Changing Business of Life Sciences blog, www.lifesciencesblog.ey.com

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transactions and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

Daniel Cusworth

Gregory Kelley

Ernst & Young Global Media Relations 

Feinstein Kean Healthcare

+44 (20) 7980 0402

+ 1 404 881 2302

[email protected]  

[email protected]

 

SOURCE Ernst & Young

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
In their session at 17th Cloud Expo, Hal Schwartz, CEO of Secure Infrastructure & Services (SIAS), and Chuck Paolillo, CTO of Secure Infrastructure & Services (SIAS), provide a study of cloud adoption trends and the power and flexibility of IBM Power and Pureflex cloud solutions. In his role as CEO of Secure Infrastructure & Services (SIAS), Hal Schwartz provides leadership and direction for the company.
There are many considerations when moving applications from on-premise to cloud. It is critical to understand the benefits and also challenges of this migration. A successful migration will result in lower Total Cost of Ownership, yet offer the same or higher level of robustness. In his session at 15th Cloud Expo, Michael Meiner, an Engineering Director at Oracle, Corporation, analyzed a range of cloud offerings (IaaS, PaaS, SaaS) and discussed the benefits/challenges of migrating to each offe...
SYS-CON Events announced today that the "Second Containers & Microservices Expo" will take place November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Containers and microservices have become topics of intense interest throughout the cloud developer and enterprise IT communities.
As organizations shift towards IT-as-a-service models, the need for managing and protecting data residing across physical, virtual, and now cloud environments grows with it. CommVault can ensure protection and E-Discovery of your data – whether in a private cloud, a Service Provider delivered public cloud, or a hybrid cloud environment – across the heterogeneous enterprise. In his session at 17th Cloud Expo, Randy De Meno, Chief Technologist - Windows Products and Microsoft Partnerships at Com...
The Software Defined Data Center (SDDC), which enables organizations to seamlessly run in a hybrid cloud model (public + private cloud), is here to stay. IDC estimates that the software-defined networking market will be valued at $3.7 billion by 2016. Security is a key component and benefit of the SDDC, and offers an opportunity to build security 'from the ground up' and weave it into the environment from day one. In his session at 16th Cloud Expo, Reuven Harrison, CTO and Co-Founder of Tufin,...
Scrum Alliance has announced the release of its 2015 State of Scrum Report. Almost 5,000 individuals and companies worldwide participated in this year's survey. Most organizations in the market today are still leading and managing under an Industrial Age model. Not only is the speed of change growing exponentially, Agile and Scrum frameworks are showing companies how to draw on the full talents and capabilities of those doing the work in order to continue innovating for success.
SYS-CON Events announced today that MobiDev, a software development company, will exhibit at the 17th International Cloud Expo®, which will take place November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. MobiDev is a software development company with representative offices in Atlanta (US), Sheffield (UK) and Würzburg (Germany); and development centers in Ukraine. Since 2009 it has grown from a small group of passionate engineers and business managers to a full-scale mobi...
Between the compelling mockups and specs produced by your analysts and designers, and the resulting application built by your developers, there is a gulf where projects fail, costs spiral out of control, and applications fall short of requirements. In his session at @DevOpsSummit, Charles Kendrick, CTO and Chief Architect at Isomorphic Software, presented a new approach where business and development users collaborate – each using tools appropriate to their goals and expertise – to build mocku...
Container technology is sending shock waves through the world of cloud computing. Heralded as the 'next big thing,' containers provide software owners a consistent way to package their software and dependencies while infrastructure operators benefit from a standard way to deploy and run them. Containers present new challenges for tracking usage due to their dynamic nature. They can also be deployed to bare metal, virtual machines and various cloud platforms. How do software owners track the usag...
SYS-CON Events announced today that VividCortex, the monitoring solution for the modern data system, will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. The database is the heart of most applications, but it’s also the part that’s hardest to scale, monitor, and optimize even as it’s growing 50% year over year. VividCortex is the first unified suite of database monitoring tools specifically desi...
Graylog, Inc., has added the capability to collect, centralize and analyze application container logs from within Docker. The Graylog logging driver for Docker addresses the challenges of extracting intelligence from within Docker containers, where most workloads are dynamic and log data is not persisted or stored. Using Graylog, DevOps and IT Ops teams can pinpoint the root cause of problems to deliver new applications faster and minimize downtime.
As Marc Andreessen says software is eating the world. Everything is rapidly moving toward being software-defined – from our phones and cars through our washing machines to the datacenter. However, there are larger challenges when implementing software defined on a larger scale - when building software defined infrastructure. In his session at 16th Cloud Expo, Boyan Ivanov, CEO of StorPool, provided some practical insights on what, how and why when implementing "software-defined" in the datacent...
Learn how you can use the CoSN SEND II Decision Tree for Education Technology to make sure that your K–12 technology initiatives create a more engaging learning experience that empowers students, teachers, and administrators alike.
Mobile, social, Big Data, and cloud have fundamentally changed the way we live. “Anytime, anywhere” access to data and information is no longer a luxury; it’s a requirement, in both our personal and professional lives. For IT organizations, this means pressure has never been greater to deliver meaningful services to the business and customers.
In a recent research, analyst firm IDC found that the average cost of a critical application failure is $500,000 to $1 million per hour and the average total cost of unplanned application downtime is $1.25 billion to $2.5 billion per year for Fortune 1000 companies. In addition to the findings on the cost of the downtime, the research also highlighted best practices for development, testing, application support, infrastructure, and operations teams.